AS borders gradually reopen amid a rise in the global inoculation rate, Guan Chong Bhd which is the world’s fourth largest cocoa grinder is seeing encouraging recovery of chocolate demand in Europe and the US.
Deeming the company’s 1H 2021 financial results as “in-line”, RHB Research has retained its “buy” rating on Guan Chong with a target price of RM4.00 based on an unchanged target P/E (price-to-earnings ratio) multiple to 18 times which is on par with the Consumer Product Index.
“With the attractive valuation of circa 12 times FY22F P/E, we believe investors should angle the economic recovery in play and stronger 2H 2021 earnings for the world’s fourth-largest cocoa grinder,” opined analyst Lee Meng Horng in a results review.
“Additionally, the company’s various regional expansion plans and product offerings are the next growth catalysts.”
According to RHB Research, Guan Chong’s 1H 2021’s RM70.3 mil earnings (-30.6% year-on-year [yoy]) were within the research house’s but below consensus’ expectations.
“The weaker yoy performance was on margins compression due to weaker demand from COVID-19’s impact and higher freight costs,” observed the research house.
“We expect the situation to reverse in 2H 2021 on lower input costs and pent-up demand. We think the current below peers’ P/E valuation remains attractive vis-à-vis its earnings base, diverse clientele and new ventures – on top of the recovery angle.”
Elsewhere, AmResearch is also bullish on Guan Chong long-term outlook as the group’s Ivory Coast, UK and German facilities are expected to come online within the next few years though a delay in construction is very likely.
All-in-all, the research house also maintained its “buy” rating on Guan Chong but with a lower fair value of RM3.12/share (vs RM3.48/share previously) based on an unchanged P/E of 15 times FY2022F earnings per share (EPS).
As it is, AmResearch noted that the Delta variant is envisaged to slow the global economic recovery, hence preventing a share price re-rating in the quarter.
“The current situation is obscuring chocolate demand projections and dissuading customers from placing orders,” projected the research house. “We believe that it will take time for cocoa butter and liquor ratios to return to pre-pandemic values.”
At 11.10am, Guan Chong was up 1 sen or 0.35% to RM2.84 with 567,000 shares traded, thus valuing the company at RM2.95 bil. – Aug 24, 2021
